Health Care Outsourcing Biz Lures Charterhouse

Charterhouse Group tapped into the nation’s rising number of uninsured health care patients and the hospitals that treat them with its latest investment. The New York-based buyout shop, a frequent investor in health care companies, bought Chamberlin Edmonds & Associates Inc., from its venture backers, Galen Partners and Trident Capital. Charterhouse Group said the deal cost in excess of $100 million but declined to be more specific.

Hospitals hire Atlanta-based Chamberlin Edmonds, whose agents interview uninsured and underinsured patients and their families—often bedside at the hospital—to find out if they’re eligible for governmental or charitable coverage, such as Social Security Disability or Medicaid. The service is increasingly critical for U.S. hospitals, which write off some $32 billion in uncompensated care annually.

Payments recouped via Chamberlin Edmonds’s efforts account for 10 percent of its client hospitals’ cash flow, according to Charterhouse Group. There are some 46 million uninsured people in the United States, though many medical experts believe that number is higher. “They function as patient advocate, applying for benefits on behalf of the patient,” Taylor Cole, a partner at the firm, said of Chamberlin Edmonds. “But they’re engaged by hospitals, which would go uncompensated if not for these programs.”

The company fits in with recent Charterhouse Group deals that targeted health care services and outsourcing. Other portfolio companies that touch on these sectors include Lason Inc., which manages information and outsourcing for companies in health care and other sectors; and LogistiCare Inc., a company that provides non-emergency medical transportation for government agencies.

Chamberlin Edmonds is one of two national companies in the sector—the other being MedAssist Inc., which buyout firm RoundTable Healthcare Management LLC sold in September to Firstsource Solutions, a Mumbai-based, private equity-backed outsourcer. Chamberlin Edmonds contracts with 165 hospitals in 27 states.

Chamberlin Edmonds’s niche is rife with smaller companies—about 30 regional companies and 100 smaller, local outfits, according to Charterhouse Group. That should provide a lengthy menu of possible acquisitions for Chamberlin Edmonds to choose from. Company management and the LBO shop are already in conversations with some potential targets, said Chris Garcia, a former health care industry executive and current operating partner who helps Charterhouse Group with its health care investments. The company could also expand by signing up hospitals that still don’t have such a service.

Charterhouse Group lined up two other experienced health care firms—Highlander Partners and MTS Health Investors—to co-invest on this deal. The buyers paid for the company with more than 50 percent equity, and financed it with senior debt from GE Healthcare Financial Services and CIT Healthcare, two lenders that have financed numerous Charterhouse Group deals.

The firm and its co-investors are experienced and poised to do well on their investment, said John Moragne, a managing director at seller Trident Capital. He declined to say whether Charterhouse Group was the highest bidder for the company, nor would he discuss his firm’s returns.

The deal marks Charterhouse Group’s 10th investment from its $447 million fourth fund, closed in 2004. That fund still has several deals’ worth of capital to invest, said David Hoffman, partner. The firm is out seeking $750 million for its fifth fund, as previously reported in Buyouts.